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The Impact on IPO Performance of Reforming IPO Allocation Regulations: An Event Study of Shanghai Stock Exchange A-Shares

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Author Info
Fei Jiang () (Department of Economics, Loughborough University)
Lawrence Leger () (Department of Economics, Loughborough University)

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Abstract

Initial public offerings in China are distinguished from IPOs in other markets by their extremely high abnormal initial returns and so-called 'Chinese Characteristics'. We examine the effect on IPO underpricing and short-run performance of significant changes in Chinese IPO regulations implemented in May 2002. The significant event was a regulatory change in the method of allocating IPO shares. Event study analysis reveals that abnormal initial returns decreased by 43.3% after the change in regulations, that beta risks of the IPOs increased and that an evenly-upward trend of cumulative abnormal initial returns was reversed to become evenly-downward. The results appear to be consistent with Information Cascades (Welch 1992) and Bandwagon (Ritter 1998) models of underpricing.

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File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/ChineseIPO.pdf
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Publisher Info
Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2009_04.

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Date of creation: Feb 2009
Date of revision: Feb 2009
Handle: RePEc:lbo:lbowps:2009_04

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Related research
Keywords: IPO underpricing; IPO allocation; Policy impact; Chinese stock market; Shanghai Stock Exchange A-shares.;

Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Poon, Winnie P. H. & Firth, Michael & Fung, Hung-Gay, 1998. "Asset pricing in segmented capital markets: Preliminary evidence from China-domiciled companies," Pacific-Basin Finance Journal, Elsevier, vol. 6(3-4), pages 307-319, August. [Downloadable!] (restricted)
  2. Reilly, Frank K., 1973. "Further Evidence on Short-Run Results for New Issue Investors," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 8(01), pages 83-90, January. [Downloadable!]
  3. Loughran, Tim & Ritter, Jay R. & Rydqvist, Kristian, 1994. "Initial public offerings: International insights," Pacific-Basin Finance Journal, Elsevier, vol. 2(2-3), pages 165-199, May. [Downloadable!] (restricted)
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  4. De Long, J Bradford, et al, 1991. "The Survival of Noise Traders in Financial Markets," Journal of Business, University of Chicago Press, vol. 64(1), pages 1-19, January. [Downloadable!] (restricted)
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  5. Stoll, Hans R. & Curley, Anthony J., 1970. "Small Business and the New Issues Market for Equities," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 5(03), pages 309-322, September. [Downloadable!]
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